Order of Payment of Liabilities and Bequests

[MrCake]

I am executor for my aunt’s estate whose assets were a mortgage-free property that is rented out, cash of £15k and chattels of £2k.

Liabilities consisted of £5k due to the care home (now paid), £70k due to me for my costs (builders etc.) in repairing the dilapidated property and enabling it to be rented out, and estimated tax on the rental income of £7k. Funeral expenses were £5k. There is also £7k payable to replace several windows due to a specific problem (long story) predating the death – enforcement action from council has been threatened.

The balance of the estate has been left equally to myself and my sister. We would like to keep the house and continue to have it rented out. We have paid the first instalment of 10 of the related IHT liability.

The will stipulated £6k payable to various charities. I intended to pay these once I had paid the rental tax, done the windows and recovered all of the amount owed to me from the net rental income. This will take over two years. One of the charities has now written to me saying they have been notified of the bequest to them via the Probate Registry and wondering when they will get their money.

I know I do not have to use my “own” money to pay the bequests, but also that bequests are expected to be paid with a year. Am I entitled to make them wait, or would I be expected to sell the house now to get the cash to pay them, or give them priority over the other liabilities?

Thanks.

[swill453]

I think you're seeing the property rental situation wrong. The property belongs to you and your sister, so the income is yours, and any tax due is your liability, not the estates. So to say that the £70K renovation cost is a liability of the estate, paid out of rental income, makes no sense.

I'd say you should set up your joint ownership of the property as tenants in common with percentage ownership to reflect the money you've put in. And if you're not selling it then between you you need to come up with the cash to settle the other liabilities, including the charity.

I am not a lawyer, though, so this may be rubbish.

Scott.

[supremetwo]

The will stipulated £6k payable to various charities.

What did the Will say about the property?

[pochisoldi]

I am executor for my aunt’s estate whose assets were a mortgage-free property that is rented out, cash of £15k and chattels of £2k.

Liabilities consisted of £5k due to the care home (now paid), £70k due to me for my costs (builders etc.) in repairing the dilapidated property and enabling it to be rented out, and estimated tax on the rental income of £7k. Funeral expenses were £5k. There is also £7k payable to replace several windows due to a specific problem (long story) predating the death – enforcement action from council has been threatened.

The balance of the estate has been left equally to myself and my sister. We would like to keep the house and continue to have it rented out. We have paid the first instalment of 10 of the related IHT liability.

The will stipulated £6k payable to various charities. I intended to pay these once I had paid the rental tax, done the windows and recovered all of the amount owed to me from the net rental income. This will take over two years. One of the charities has now written to me saying they have been notified of the bequest to them via the Probate Registry and wondering when they will get their money.

I know I do not have to use my “own” money to pay the bequests, but also that bequests are expected to be paid with a year. Am I entitled to make them wait, or would I be expected to sell the house now to get the cash to pay them, or give them priority over the other liabilities?

Thanks.

As far as I know, the fiscal duties of the executor are as follows:

1) Identify (and if neccessary realise) any assets belonging to the estate
2) Identify any debtors who owe money to the estate (part of the above really)
4) Account for any income/CGT tax due on the deceased's personal affairs and during the administration period
5) Identity any and all creditors who are owed money by the estate (beneficiaries are NOT creditors!)
6) Account for inheritance tax
7) Disburse the monies
a) Pay off any debts owed by the estate
b) Pay any specific bequests specified in the will
c) Distribute the residue as specified in the will
This assumes that the estate is not insolvent - I'm not going there.

The will may also give the executor to act as if they were the deceased in order to maintain and preserve assets.
This allows the executor to do things like insure a property, or could even extend to letting the property out on behalf of the estate.
If the property was to be sold, then it permits the executor to do works to facilitate that sale.
IMHO it does not permit the executor to carry out works beyond that in anticipation of the property being passed to a beneficiary. (I suppose that this might be possible if paid from the residue of the estate and if the residue would have passed to the beneficiary with the property anyway.)

In this case, assuming that the debts have been correctly calculated, there is sufficient value in the estate to pay the specific bequests, but insufficient cash.
The simple answer is "Sell the property", but you (as residual beneficiary) want to hold onto the property.
Therefore the easy answer is to buy (in your personal capacity) the share of the property that "belongs" to the specific beneficiaries from the estate.
This money is then distributed by the executor as determined by the will as part of step 7b, leaving you to move on to step 7c and have the property registered in your name at the Land Registry.

Note that you cannot put the property in your name until you receive it from the executor.
The executor cannot transfer the property to you (as a residual beneficiary), until they have completed the estate accounts and paid the specific bequests.
Be warned - if the bequests have been made to a charity, they will come after the executor for the money from the estate, and if there have been any shenanigans relating to the administration of the estate they will come after you in a personal capacity (probably with a legal bill on top).

My parting shot is to remember that you have two hats: "beneficiary" and "executor". When you spend any money, make sure you are wearing the right hat, so that you can account for any spending accordingly, otherwise problems will arise long after the estate has been settled. (e.g. confusion on liability to income tax on rental income - Who's liable the estate or the beneficiary?, CGT when the property gets sold)

PochiSoldi
(Usual "I am not a lawyer" disclaimer applies)

[Watis]

Reading this thread, it sounds like probate has yet to be granted. If that is the case, can the charities be told to wait until probate, whereupon the amounts due to them will be paid?

Watis

[MrCake]

I think you're seeing the property rental situation wrong. The property belongs to you and your sister, so the income is yours, and any tax due is your liability, not the estates. So to say that the £70K renovation cost is a liability of the estate, paid out of rental income, makes no sense

My post wasn't clear I'm afraid. The income tax arose on the rental whilst my aunt was still alive. The renovation costs were for work whilst my aunt was still alive. She "should" have paid them but did not have the cash. I was Financial Deputy and took the decision to lend her the money to get the work done. The CoP representative was happy with this. When my aunt died the work had been completed and the property had already been rented out for 10 months. The tenants are still in place.

What did the Will say about the property?

No specific bequest regarding the property, it was part of the residue left 50/50 to myself and my sister.

Reading this thread, it sounds like probate has yet to be granted

Probate has been granted but the property has not been transferred yet from the estate to us.

Therefore the easy answer is to buy (in your personal capacity) the share of the property that "belongs" to the specific beneficiaries from the estate.This money is then distributed by the executor as determined by the will as part of step 7b, leaving you to move on to step 7c and have the property registered in your name at the Land Registry.

That seems a logical way of looking at it that I had not considered.

The executor cannot transfer the property to you (as a residual beneficiary), until they have completed the estate accounts and paid the specific bequests. Be warned - if the bequests have been made to a charity, they will come after the executor for the money from the estate, and if there have been any shenanigans relating to the administration of the estate they will come after you in a personal capacity (probably with a legal bill on top).

No shenanigans are planned! Just wanted to know the legal landscape.

Thank you all.